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The Facebook Economic Effect (FEE)

Over the past decade, I've been thinking about where the American economy is going, and what the next engine of growth will be. I'm having trouble foreseeing which new industry or technology will produce the tens of millions of jobs needed to maintain our standard of living.

We're now enamored of social networking, but what effect does Facebook have on our economy? Is social networking a new growth engine? Facebook employs 2000 people, so their direct employment is miniscule compared to other industries. Other social network companies have even fewer employees. The investment rationale of these internet enterprises is that the user base scales exponentially with the "network effect" but payroll does not. So on the jobs side of the ledger, social networks don't do much for the economy.

Now consider the LOSS OF PRODUCTIVITY. As of this writing, Facebook users are burning 700 billion minutes a month socializing. If you value the average user's time at $4/hour (debatable number but humor me for a minute), the value of that time is $560-billion per year, or slightly larger than the US Defense Budget! Not all users are in the United States, but this gives you a sense of the economic time sink that is Facebook.

Whether Facebook produces economic activity is dubious. I doubt that people are spending more money as a result of chatting with their friends, even if their friends are waxing poetic about their new gizmos or the movie they've just seen.

By my analysis, the Facebook Economic Effect (FEE) is a net loss of productivity with virtually no job gains. You could argue that all that loss of productivity actually increases employment, but that's a rather cynical solution to joblessness.

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On a somewhat related subject, David Brooks' column today is an absolute must-read for those who follow the intersection of technology and society. Brooks argues that young people today are enhancing their quality of life for almost no cost by using new gizmos and experiences, whereas previous generations had to PAY for improvements in their perceived quality of life by BUYING stuff. So people today can enjoy life without spending a whole lot of money to do it whereas previous generations had to WORK for improved quality of life.

Brooks' theory is that this has led to lower motivation among young people to work hard.

It's an interesting theory, but (a) many young people work extremely hard (although I do think it's a small percentage) and (b) it might just be a result of growing up affluent that dulls the need to work hard. A few years ago I was on a flight to Asia, chatting with a Singaporean who had graduated high school in Singapore and had a couple of Harvard degrees. I commented to him that Asian "feeder" schools could probably provide enough over-qualified high school graduates to fill the Ivy Leagues in the next decade or so, crowding out the Americans. His answer, "Yes, but as Asian kids become more affluent, their drive will decrease and they will lose their competitive edge."

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